U.S. stocks are off to another volatile day of trading Wednesday, with the Dow giving up 400 points on the day. While the trading action has most investors taking huge losses, the VIX volatility index and its derivatives have produced major gains in the past week.
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In the past week, the VIX is up nearly 60 percent, and the BRCL BK IPTH S&P 500 VIX SH FTRS ETN (NYSE: VXX) is up 18.6 percent. The VIX is a measure of the amount of volatility options traders are pricing in over the month ahead.
Why Its Important
The market volatility may be tied to the ongoing U.S. trade war with China and/or fears surrounding the upcoming Q3 earnings season and the U.S. midterm elections. After hovering above 50 for most of the past month, the CNN Money Fear and Greed Index plummeted in the past week from 51 to 13. That's well into the Extreme Fear of the index, which ranged from 0 to 100.
Interest rates have also become a major concern for some investors. Weaker-than-expected inflation in the momnth of September coupled with the10-year Treasury yield topping 3.15 percent has some investors worried that rising borrowing costs could slow down U.S. economic growth. The Federal Reserve has also given noindication it will slow down or stop its pattern of rate hikes in the near future.
The VIX at one point traded above 19.17 Wednesday, its highest level since June. Market volatility has spiked multiple times in 2018, most notably back in February when the S&P 500 plummeted following a hot start to the year.
Traders that expect the spike in volatility to continue can take a close look at how some of the following popular volatility ETFs have traded in the past week:
- ProShares VIX Short-Term Futures (NYSE: VIXY) is up 19.3 percent.
- Cr SUISSE AG NA/VELOCITY SHS SHORT (NASDAQ: VIIX) is up 18.6 percent.
- BRCL BK IPTH SP 500 VIX MD FTRS ETN (NYSE: VXZ) is up 6.8 percent.
- VelocityShares Daily 2x VIX ST ETN (NYSE: TVIX) is up 40.1 percent.
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